Altria Group Inc (NYSE: MO) share value slipped nearly 10 percent, recently, when the FDA revealed its plans to order electronic cigarette-maker Juul to pull their products out of the retail market in the US. This, of course, could introduce greater risk for the tobacco giant's developing investment in the vaping startup.
Altria Invests in Electronic Cigarette Startup Juul
In 2018, Altria announced its plan to acquire a 35 percent stake in Juul. Altria, of course, is probably best known as the distributor of Marlboro cigarettes, so this seemed a sensible move at the time. Unfortunately for Altria, though, Juul has been dealing with lawsuits that allege their health claims are misleading. This has been further complicated with additional allegations that the company is intentionally trying to make vaping more appealing to younger consumers.
Contrary to the claims, Juul actually stopped selling its sweet-flavored nicotine products, knowing that teens are drawn to them over traditional flavors. Whether or not that this has succeeded in reducing underage use, the move did result in a drop in sales. Just last year, revenue fell by more than 10 percent, to $1.3 billion. This is equivalent to a loss of nearly $260 million.
Value Drags After Regulatory Changes
This decision, from the FDA, comes only one day after the regulatory US agency announced their intent to require all tobacco makers to cut down on the amount of nicotine found in their products. Specifically, the FDA wants the nicotine in these products to be reduced to nonaddictive levels.
Now, changes like this could take at least a year before we see any action so, in the meantime, the FDA is trying to determine whether or not vaping products from several hundred other companies can still be sold in the US without similar regulation. For this effort, the FDA has already asked the manufacturers of these products to submit their own applications in order to demonstrate—and prove—that their devices are, in fact, a “healthier” alternative to traditional cigarettes.
While this is just an initial announcement—and considering the changes won't even start for at least a year—it seems to have affected their stock price. For example, as of the third week of June, Altria's 5 day performance is down more than 9 percent. Looking back at the greater timeline, things are not faring any better: the share value for MO is down 23 percent on the month and nearly the same on the quarter. Year-to-date, performance is down nearly 11.75 percent.
The Struggle Could Persist in an Extended Bear Market
Of course, it does not help that the Standard & Poors 500 Index officially entered into a bear market in the middle of June, characterized by an overall slide of 20 percent since its record close on January 3. The outlook for the rest of the year, alas, is not any better; in fact, the US equity benchmark is currently on track to register a historically poor half-year performance as markets expect to experience tighter fiscal policies aimed at fighting inflation and preventing a recession.
Traditionally, the S&P 500 will fall, on average, by about one-third during the typical recession. However, with this index already seeing a 24 percent drop in equities experts are now advising that there is a 72 percent recession probability already priced into the market as it stands.
Analysts Give Altria Stock (NYSE: MO) a HOLD Rating
Currently, then, Altria is trading around a 16-month low of $41.50. It has a stock Composite Rating of 78 and an EPS Rating of 76. Also, it seems that most analysts would give MO stock (Altria Group Inc) a HOLD rating. About a quarter of analysts, on the other hand, suggest this could be a good time to BUY shares of MO; and these ratings have actually remained consistent over the most recent quarter.
At the same time, it's not like Altria share value could sink any lower. Some might even attest that the stock is overweight. Analysts estimated EPS range for fiscal 2021, for example, is 4.6 but the actual is closer to 1.4. And since Altria expects earnings will grow steadily this year and next at 5 and 6 percent, respectively, the stock is, at the very least, worth watching.
For the time being, then, the stock's current price is around $41.50 with an average target of $55.80. This sits quite perfectly near the median target of $56.00, with a high of $68.00 and a low of $47.50.
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